The influx of luxury-starved mainland tourists did wonders for Hong Kong's retail business, but it also created massive distortions and imbalances in the local economy.

If any political lesson could be drawn from last month's Legislative Council election, few would disagree that the pan-democrats' alarm over the "mainlandisation" of Hong Kong struck a chord with the voters. This theme was ever present, whether in the form of a rally against national education or calls to "defend Hong Kong's core values".

No doubt deeply disturbing to the leaders in Beijing, this rising tide of anti-mainland sentiment is occurring against a backdrop of sustained economic growth buoyed by tourism and liquidity from the mainland. What makes Hong Kong bite the hand that feeds it?

Rather than lay the blame on the apparent "pro-China" inclinations of Chief Executive Leung Chun-ying or alleged interventions by mainland officials, I would argue that the anti-mainland sentiments are a direct outcome of Hong Kong's mismanagement of the relationship between the mainland and Hong Kong in the past decade, especially in the economic arena.

The story dates back to a policy change in 2003. After the outbreak of severe acute respiratory syndrome devastated the Hong Kong economy, authorities here decided to seek a quick fix by lifting hitherto tight controls on mainland visitors to Hong Kong. The influx of luxury-starved mainland tourists did wonders for Hong Kong's retail business, but it also created massive distortions and imbalances in the local economy, which have accentuated deep-rooted structural problems and metastasised into a prickly political issue.

The truth is, while the rising influx of tourists no doubt created an immediate boost to demand, the phenomenon of too much demand chasing inadequate supply of shop spaces, baby formula or maternity beds overstretched local resources, and, in the process, generated a backlash of resentment against the big spenders.

Hong Kong people are now waking up to the reality that the explosion of demand has led to a scramble by overseas brand-name retailers to set up flagship stores in the city, driving up rents and property prices and driving out small, popular local businesses, thus further aggravating the wealth gap and fuelling local antipathy towards the cash-rich visitors.

What the authorities have missed is that a quick fix is no substitute for a long-term strategy for restructuring our economy to enable it to create more value and hence enable our people to enjoy a higher standard of living. In an expensive city like Hong Kong, the people are bound to lose out if ever-increasing numbers of workers are engaged in jobs that create little value and hence have little room for upward advancement.

And that is precisely what has happened. As travel restrictions on mainland citizens continue to be relaxed to allow less the well-to-do ones to make multiple visits, Hong Kong people are witnessing a stampede to the bottom. Budget visitors cut costs by camping on beaches or checking into unlicensed guest houses, clogging up roads, crowding trains and turning popular tourist spots into areas sardonically dubbed "mainland colonies".

Ever since the "hollowing out" of Hong Kong's manufacturing industries in the 1980s, the city has failed to grasp the nettle and formulate an industrial policy to generate new jobs in new sectors of economic activity. Little was done to fill the slack left by industries lured away by a welcoming mainland economy.

Over the years, by leaving economic development to unbridled market forces and lacking a strong hand to steer the economy to innovation, Hong Kong has degenerated into a primarily service economy, now overly dependent on mainland tourism and investments. Meanwhile, its higher-end service sectors, notably financial services, are shedding jobs because of the ongoing European fiscal crisis. The same story is unfolding in the trade-related service sector as state-guided economic restructuring in the Pearl River Delta reduces the demand for Hong Kong's services.

As the government attempts to revitalise the local economy by returning to the old growth model of building new towns and developing the New Territories, it finds itself caught in a tight spot as villagers, developers and environmentalists alike appear to conspire to block new developments.

What the government has neglected is that in a densely populated, land-starved and expensive city like Hong Kong, it is better off promoting the development of the knowledge-based segments of the economy. Other regional economies, notably Singapore and Shenzhen, have pursued a deliberate strategy of developing the higher-value-added, knowledge-intensive sectors of the economy, such as information processing, data analysis and sharing, scientific research, high-end manufacturing, education and consulting. Yet Hong Kong's high-end jobs are diminishing as external demand shrivels.

And that's the root of the rage against mainland favours - enriching the few, depleting our resources, reducing Hong Kong to a shopkeepers' city and a playground for the nouveau riche. No amount of goodwill from mainland officials can cure this, unless we set our own house in order.

Regina Ip Lau Suk-yee is a legislator and chair of the New People's Party

This article appeared in the South China Morning Post print edition as A wrath of our own making

But Singaporean expansion also comes with a high price, foreign import labour. Read the Singapore papers and you'll know how much Singaporeans despised the influx of foreigners! There's a lot of new migrants in Singapore now, mostly Chinese and Indians. It's a problem difficult to avoid now.My child was warded in Queen Mary hospital recently and while staying there, at some point I felt I was in a hospital in China as there were more Mainlanders in the ward than locals!

We agree, but we don't have a problem of insufficient laborers yet. We have several more million people than them already. The hospital issue, well that is the problem of Mainland births. Did you know a Taiwan mother giving birth in Hong Kong can also have a child who is a Hong kong resident…..but what is the point? Do you see, they are still running away from China!

mymak Oct 14th 201210:46am

This investment in high-end industries will not happen until the Gov't stops ruling by popularity polls. For those who oppose democracy, look at Singapore's system. We all know who will win, the same party every time. But at least this facade of democracy allows the population to let-off steam every few years and in between times the Gov't can get on with the job of creating a strong independent future for its people.
Unfortunately, for Hong Kong, until recently we have been conditioned to accept and be happy with short-term economic benefits, i.e. annual cash handouts from the Gov't. Investing in high-end industry will not see economic benefits during Leung's administration.
Great idea, Regina, but not original (I remember citing this idea in an Economics dissertation I did way back in 1997) and not possible without the political will to withstand pollsters.

Yeah…we all know the system in Singapore quite well…but the big difference is that the government in Singapore is governing Singapore and looking out for itself and the people in Singapore wrong or right as it may be. The government in Hong Kong is clearly taking orders from Beijing and implementing an economic strategy of helping the property typhoons who are also big supporters of Beijing and the lucrative property deals on the Mainland they support gives them, and of course Beijing itself. Do you think Li Ka-Shing makes publics statements unless promoted by the Mainland? Don't kid yourself. Hong Kong itself now exists to help Mainland state owned companies generate capital, and access foreign financial markets, a place for mainland tycoons, tourism and whatever….but not to serve the people of Hong Kong.

Sadly at the end of the day there is no political will. The information that I originally refer to came from one of those 'Hong Kong Yearbooks' from the early 90s. It appears there was no political will before the handover and none now. Heaven help us if the economy across the border hits any major problems. In the 30s during the great depression when countries such as Australia were over reliant on the UK, the British simply pulled back all of their resources to the motherland to protect their own people first.

xiaoblueleaf Oct 14th 201210:31am

Ms Ip right on! Every dollar I spend in Hong Kong, 40 cents or more go to the property tycoons and owners!

captam Oct 14th 201210:13am

At one fell swoop Regina has now reduced poor Donald Tsang’s legacy to only a bow-tie collection.We have quite a few museums in Hong Kong but not a bow-tie museum................... now there's a thought! It's the only thing Tsang will likely be remembered for.

lucifer Oct 14th 20129:52am

Look at Singapore, with government support and a high tech innovation strategy, they manufacture computers, robots, jet engines, military tanks…you name it…we were all too happy to give everything to the mainland, now that is what is expected of us - give it all to the Mainland. So much so, that even our high tech graduates have to go work on the mainland because there is nothing for them to do in Hong Kong. The Hong Kong government definitely needs a strategy on how to support indigoes innovation, business and create jobs. We already have top ranked universities, lets not squander our resources and get going.But then again…maybe that is the intention of the mainland authorities….deplete Hong Kong of all business other that services, make it totally dependent on the mainland, make it weak and helpless so that at some point there will be nothing left to do but fold it into the Mainland and rename it South Shenzhen.

I like it how propagandist like yourself still use the term "give". Because it makes u feel better when those up north out compete you? I will also love to see which area in HK will likely welcome polluting factories to return to HK. Kwun Tong perhaps?

Who said we want polluting factories? We want high tech innovation and the industrial complex that goes with it. Do you think the EU lets factories pollute like they do in China? You can be competitive by being innovative, high tech and efficient. China has always been competitive by being cheap, part of which was done by ignoring the environment and environmental regulations.